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A Gaussian approach for continuous time models of the short-term interest rate

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  • JUN YU
  • PETER C. B. PHILLIPS

Abstract

This paper proposes a Gaussian estimator for nonlinear continuous time models of the short-term interest rate. The approach is based on a stopping time argument that produces a normalizing transformation facilitating the use of a Gaussian likelihood. A Monte Carlo study shows that the finite-sample performance of the proposed procedure offers an improvement over the discrete approximation method proposed by Nowman (1997). An em-pirical application to US and British interest rates is given.

Suggested Citation

  • Jun Yu & Peter C. B. Phillips, 2001. "A Gaussian approach for continuous time models of the short-term interest rate," Econometrics Journal, Royal Economic Society, vol. 4(2), pages 1-3.
    • Handle: RePEc:ect:emjrnl:v:4:y:2001:i:2:p:3
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